Small Business Tax Essentials for National Small Business Week
The Internal Revenue Service (IRS) has curated a range of resources to help small business owners navigate their tax responsibilities with ease during National Small Business Week. The IRS will highlight some of these resources during the week, and a special Twitter chat is set to take place on Thursday under the @IRSnews account.
Starting a business comes with several considerations. One of the initial considerations is the Employer Identification Number (EIN), a permanent identifier required for various business needs, from opening bank accounts to filing tax returns by mail. Business owners can apply for and receive their EIN instantly online at IRS.gov, free of charge.
Choosing the appropriate business structure is another crucial step. The decision influences the type of income tax return form to be filed. Common business structures include Sole Proprietorships, Partnerships, Corporations, S Corporations, and Limited Liability Companies (LLC). Each structure has its specific tax implications. The IRS will treat an LLC as either a corporation, a partnership, or part of the owner’s tax return, depending on the elections made by the LLC and the number of members.
Understanding business taxes is a key for running a successful small business. As per law, taxes are payable as income is earned. Small business owners and self-employed individuals typically make quarterly estimated tax payments throughout the year. The type of business determines the kind of taxes to be paid and how to pay them. The four general types of business taxes are Income Tax, Self-employment Tax, Employment Tax, and Excise Tax.
Besides assisting with tax return preparation, maintaining organized records can aid small businesses in preparing financial statements, tracking income sources, recording deductible expenses, and monitoring their growth, among other benefits. It is advised to keep records for at least three years.
Finally, small businesses must establish their taxable income based on a “tax year,” an annual accounting period for reporting income and expenses. They can opt for a Calendar year, which is 12 consecutive months beginning January 1 and ending December 31, or a Fiscal year, which is 12 consecutive months ending on the last day of any month except December. There’s also the option of a 52 to 53-week tax year, a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month.
National Small Business Week provides an opportunity for small business owners to gain essential knowledge and skills for efficient tax management, enabling the growth and sustainability of their enterprises. The IRS’s commitment to providing free resources is much-needed support to this crucial sector of the economy.
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